The Case for Mandatory Ownership Disclosure

Schouten, Michael C. (2009): The Case for Mandatory Ownership Disclosure.

Abstract

The use of equity derivatives to conceal economic ownership of shares (“hidden ownership”) is increasingly drawing attention from the financial community, as is the exercise of voting power without corresponding economic interest (“empty voting”). Market participants and commentators have called for expansion of ownership disclosure rules, and policymakers on both sides of the Atlantic are now contemplating how to respond. Yet, in order to design appropriate responses it is key to understand why we have ownership disclosure rules in the first place. This understanding currently appears to be lacking, which may explain why we observe divergent approaches between countries. The case for mandatory ownership disclosure has also received remarkably little attention in the literature, which has focused almost exclusively on mandatory issuer disclosure. Perhaps this is because most people assume that ownership disclosure is a good thing. But why is such information important, and to whom? This paper aims to answer these fundamental questions, using the European disclosure regime as an example. First, the paper identifies two main objectives of ownership disclosure: improving market efficiency and corporate governance. Next, the paper explores the various mechanisms through which ownership disclosure performs these tasks. This sets the stage for an analysis of hidden ownership and empty voting that demonstrates why these phenomena are so problematic.

• Item Type: MPRA Paper
• Language: English
• Keywords: ownership disclosure; market efficiency; corporate governance; monitoring; hidden ownership; empty voting; hedge fund activism
• Subjects: K - Law and Economics > K2 - Regulation and Business Law > K20 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; K - Law and Economics > K2 - Regulation and Business Law > K22 - Business and Securities Law; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General

References

EUROPEAN SECURITIES MARKETS EXPERT GROUP, FIRST REPORT OF ESME ON THE TRANSPARENCY DIRECTIVE (2007), at 2.

See also NIAMH MOLONEY, EC SECURITIES REGULATION (Oxford University Press 2008), at 195 (noting that the Directive suffers from a lack of clarity as to its core objectives).

The terminology has been introduced by Henry T. Hu & Bernard S. Black, The New Vote Buying: Empty Voting and Hidden (Morphable) Ownership, 79 S. Cal. L. Rev. 811, 815, 816 (2006).

See, e.g., THE CONTROL OF CORPORATE EUROPE (Fabrizio Barca & Marco Becht eds., Oxford University Press 2001).

STRONG BLOCKHOLDERS, WEAK OWNERS AND THE NEED FOR EUROPEAN MANDATORY DISCLOSURE (European Corporate Governance Network Executive Report prepared by Marco Becht 1997), at 28, 32.

Compare EILÌS FERRAN, BUILDING AN EU SECURITIES MARKET (Cambridge University Press 2004), at 127, 130 (identifying improving share price accuracy and addressing corporate governance agency problems as the two key functions of issuer disclosure requirements, and stating that the EU issuer disclosure regime is largely designed with a view to improving the accuracy of securities prices in the interests of investor protection and market efficiency, but that is has recently started explicitly addressing corporate governance disclosures).

PAUL DAVIES, THE TAKE-OVER BIDDER AND THE POLICY OF DISCLOSURE, in: EUROPEAN INSIDER DEALING (Klaus Hopt & Eddy Wymeersch eds., Butterworths 1991), at 261 (noting that ownership disclosure may be thought to contribute to investor confidence, but developing this argument by stating that the focus of the (UK) disclosure rules is on informing the market of certain important facts so that other actors can take appropriate decisions, thus promoting efficiency).

For reasons of space, neither does this paper discus how market efficiency and good corporate governance can lower the cost of capital. For a discussion, see, e.g., Christian Leuz & Peter D. Wysocki, Economic Consequences of Financial Reporting and Disclosure Regulation: A Review and Suggestions for Future Research (March 2008). Available at SSRN: http://ssrn.com/abstract=1105398;

Rafael La Porta, Florencio Lopez-De-Silanes & Andrei Shleifer, What Works in Securities Laws?, 61 J. Fin. 1, 19 (2006)

Merritt B. Fox, Artyom Durnev, Randall Morck & Bernard Y. Yeung, Law, Share Price Accuracy and Economic Performance: The New Evidence, 102 Mich. L. Rev. 331, 342 (2003).

An important question in the debate on mandatory issuer disclosure is whether it is necessary to mandate issuers to disclose information in order for such information to be impounded in share prices. Some scholars have argued that issuers can be expected to voluntarily disclose their private information as a signal of their products' quality. See, e.g., Roberta Romano, Empowering Investors: A Market Approach to Securities Regulation, 107 Yale L.J. 2359, 2373-80 (1998). Even if this argument holds true for issuers, it is doubtful whether it does so for shareholders, given the difference in incentives between them. For this reason, it is assumed in this paper that a market solution is unlikely to produce a socially desirable level of ownership disclosure.

Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. Finan. Econ. 305 (1976). Compare Jensen & Meckling, supra note Error! Bookmark not defined. at 313 (developing a model showing that when prospective minority shareholders realize that the manager’s interests diverge from theirs, the price which they will pay for shares will reflect the monitoring costs and the effect of the divergence between the manager’s interest and theirs);

See Anat R. Admati, Paul Pfleiderer & Josef Zechner, Large Shareholder Activism, Risk Sharing, and Financial Market Equilibrium, 102 J. Pol. Econ. 1130 (1994);

Andrei Shleifer & Robert W. Vishny, A Survey of Corporate Governance, 52 J. Fin. 737, 754 (1997).

See, e.g., Marc Goergen, Luc Renneboog & Chendi Zhang, Do UK Institutional Shareholders Monitor Their Investee Firms? (April 2008). Available at SSRN: http://ssrn.com/paper=1120204;

See HENRY HANSMANN & REINIER KRAAKMAN, AGENCY PROBLEMS AND LEGAL STRATEGIES, in: THE ANATOMY OF CORPORATE LAW: A COMPARATIVE AND FUNCTIONAL APPROACH (Oxford University Press 2004), at 22;

Mike Burkart, Denis Gromb & Fausto Panunzi, Large Shareholders, Monitoring, and the Value of the Firm, 112 Quart. J. Econ. 693 (1997).

See, e.g., Jana P. Fidrmuc, Marc Goergen & Luc Renneboog, Insider Trading, News Releases, and Ownership Concentration, 61 J. Fin 2931, 2958 (2006);

Henrik Cronqvist & Rudiger Fahlenbrach, Large Shareholders and Corporate Policies (2007). Available at SSRN: http://ssrn.com/abstract=891188.

Empirical studies suggest that the presence of multiple blockholders can sort different effects: see, e.g., Luc Laeven & Ross Levine, Complex Ownership Structures and Corporate Valuations, 21 Rev. Financ. Stud. 579 (2008) (finding that blockholders fight to form ruling coalitions so that they can extract private benefits);

Benjamin Maury & Anete Pajuste, Multiple Large Shareholders and Firm Value, 29 J. Banking Finance, 1813 (2005) (finding that firm value increases when voting power is distributed more equally among blockholders).

See Ronald J. Gilson, Controlling Shareholders and Corporate Governance: Complicating the Comparative Taxonomy, 119 Harv. L. Rev. 1641, 1652 (2006);

Marcel Kahan & Edward B. Rock, Hedge Funds in Corporate Governance and Corporate Control, 155 U. Pa. L. Rev. 1021, 1049 (2007).

See Ronald J. Gilson & Jeffrey N. Gordon, Controlling Controlling Shareholders, 152 U. Pa. L. Rev. 785 (2003) (discussing the controlling shareholder tradeoff).

This may explain why empirical studies into the relationship between types of ownership structure and firm value have produced mixed results; for an overview, see Steen Thomsen, Torben Pedersen & Hans Kurt Kvist, Blockholder Ownership: Effects on Firm Value in Market and Control Based Governance Systems, 12 J. Corp. Finan. 246, 251 (2006).

Donald C. Langevoort, Managing the “Expectations Gap” in Investor Protection: the SEC and the Post-Enron Reform Agenda, 48 Vill. L. Rev. 1139, 1152 (2003) (noting that the two functions of issuer disclosure, improving market efficiency and addressing agency problems, are inseparable insofar as a valuation decision is impossible without an assessment of the risk that incumbent management will divert to itself the otherwise expected stream of earnings). Luigi Zingales, What Determines the Value of Corporate Votes?, 110 Quart. J. Econ. 1048 (1995).

It would also enable evaluation of the possible effects of a tender offer. 111 Cong. Rec. 28,259 (1965) (remarks of senator Williams). But see Jonathan R. Macey & Jeffrey M. Netter, Regulation 13D and the Regulatory Process, 65 Wash. U.L.Q. 131, 144 (1987) (suggesting incumbent management may be the primary beneficiary).

See also Zohar Goshen & Gideon Parchomovsky, On Insider Trading, Markets, and “Negative” Property Rights in Information, 87 Va. L. Rev. 1250, 1275 (2001) (arguing that if takeover premiums constitute a substantial part of the returns of analysts (defined as professional investors who produce financial analytical work upon which they base their investment decisions), they will need protection from bidders' confidential accumulation of the target shares, and that the Williams Act provides such protection by mandating that potential bidders disclose their intention after accumulating five percent of the target shares). See Zohar Goshen & Gideon Parchomovsky, The Essential Role of Securities Regulation, 55 Duke L.J. 711, 723 (2006) (coining the term “information traders” to describe a group that “lack access to inside information, but are willing and able to devote resources to gathering and analyzing information as a basis for their investment decisions” and comprises two subgroups: sophisticated professional investors and analysts).

Alon Brav, Wei Jiang, Randall S. Thomas & Frank Partnoy, Hedge Fund Activism, Corporate Governance, and Firm Performance (2006), at 24, 26 (using a sample consisting of 1,059 hedge fund-target pairs for the period 2001-2006, the authors measure effects of Schedule 13D filings and document abnormal return of approx. 2.0% on the filing day and the following day; afterwards, the abnormal returns keep trending up to a total 7.2% in twenty days. The authors conclude that share prices adjust to a level reflecting the expected benefit of intervention, adjusted for the equilibrium probability that the fund continues with its activism and succeeds). Available at SSRN: http://ssrn.com/abstract=948907;

April Klein & Emanuel Zur, Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors (2006), at 27 (finding statistically significant mean market-adjusted returns of 7.2% over the [–30, +30] window around filing and concluding that the market perceives substantial benefits upon learning that a firm is targeted by a hedge fund activist). Available at SSRN: http://ssrn.com/abstract=913362.

In practice, the line between share price revisions due to the prospect of a takeover and revisions due to the prospect of shareholder activism is somewhat blurry. Brav et al., at 47, show that acquisitions by hedge funds that can be interpreted as a prelude to a sale of the target company yield the highest returns relative to other types of activism. These findings are consistent with an empirical study by Robin M. Greenwood & Michael Schor, Investor Activism and Takeovers (2008), at 29. Available at SSRN: http://ssrn.com/abstract=1003792.

Lucian A. Bebchuk, Reinier H. Kraakman & George G. Triantis, STOCK PYRAMIDS, CROSS-OWNERSHIP, AND DUAL CLASS EQUITY: THE MECHANISMS AND AGENCY COSTS OF SEPARATING CONTROL FROM CASH-FLOW RIGHTS, in: CONCENTRATED CORPORATE OWNERSHIP (R. Morck ed., 2000), at 295.

Bernard Black & Reinier Kraakman, A Self-Enforcing Model of Corporate Law, 109 Harv. L. Rev. 1911, 1945 (1996).

This debate was ended abruptly late 2007 when Commissioner McCreevy announced he would not further pursue the issue. Speech by Commissioner McCreevy at the European Parliament's Legal Affairs Committee, 3 October 2007. This decision was based in part on two academic studies: Mike C. Burkart & Samuel Lee, The One Share - One Vote Debate: A Theoretical Perspective (2007). Available at SSRN: http://ssrn.com/abstract=987486, and

Renee B. Adams & Daniel Ferreira, One Share, One Vote: The Empirical Evidence (2007), at 22. Available at SSRN: http://ssrn.com/abstract=987488.

See HIGH LEVEL GROUP OF COMPANY LAW EXPERTS, REPORT ON ISSUES RELATED TO TAKEOVER BIDS IN THE EUROPEAN UNION (2002), at 25.

Arman Khachaturyan, Trapped in Delusions: Democracy, Fairness and the One-Share-One-Vote Rule in the European Union, 8 EBOR 335, 357 (2007)

See Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert Vishny, Investor Protection and Corporate Valuation, 57 J. Fin. 1147 (2002) (finding higher valuation (measured by Tobin's Q) of firms with higher cash flow ownership by the controlling shareholder);

Stijn Claessens, Simeon Djankov, Joseph P.H. Fan & Larry H.P Lang, Disentangling the Incentive and Entrenchment Effects of Large Shareholdings, 57 J. Fin. 2741, 2764 (2002). Claessens et al., supra note Error! Bookmark not defined., at 2755 (using a sample of East Asian firms and finding that for the largest shareholders, the difference between control rights and cash flow rights is associated with a value discount, and the discount generally increases with the size of the wedge and that firm value decreases when the control rights of the largest shareholder exceed its cash flow ownership);

Tatiana Nenova, The Value of Corporate Voting Rights and Control: A Cross-Country Analysis, 68 J. Finan. Econ. 325, 327 (2003) (showing that where private benefit extraction is expected to be high, non-voting shares trade at a deep discount over voting shares).

Ronald J. Gilson & Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549, 570 (1984).

See Aslihan Bozcuk & M. Ameziane Lasfer, The Information Content of Institutional Trades on the London Stock Exchange, 40 J. Finan. Quant. Anal. 621, 638 (2005); Bozcuk & Lasfer, supra note Error! Bookmark not defined., at 631 (measuring announcements effects of institutional block trading activity on the London Stock Exchange from 1993 to 1999 and finding that buys by fund managers result in statistically significant abnormal returns both on the announcement date (CAR [-1, +1] = +1.17%) and in the post-event period (CAR [+2, +40] = 2.33%), and that large sales result in negative abnormal returns on the announcement date (CAR [-1, +1] = - 0.83%) and in the post-event period (CAR [+2, +40] = -2.39%));

David Hirshleifer & Siew Hong Teoh, Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis, 9 Europ. Finan. Manage. 25, 48 (2003).

Sugato Chakravarty, Stealth-trading: Which Traders’ Trades Move Stock Prices? 61 J. Fin. Econ. 289 (2001).

See Hans A. Degryse, Mark Van Achter & Gunther Wuyts, Shedding Light on Dark Liquidity Pools (2008), at 3, 6, 13. Available at SSRN: http://ssrn.com/abstract=1303482.

Christopher Clifford, Value Creation or Destruction? Hedge Funds as Shareholder Activists (2007), at 42 (using a sample of activism campaigns in the US by hedge funds from 1998-2005 and documenting statistically significant market-adjusted returns of 1.74% (passive) and 3.44% (active) over a [-2, +2] window around the disclosure date). Available at SSRN: http://ssrn.com/abstract=971018.

See Ekkehart Boehmer, Charles M. Jones and Xiaoyan Zhang, Which Shorts are Informed?, 63 J. Fin. 491 (2008);

Ekkehart Boehmer & J. Wu, Short Selling and the Informational Efficiency of Prices (2008). Available at SSRN: http://ssrn.com/abstract=972620.

Michael J. Aitken, Alex Frino, Michael S. McCorry & Peter L. Swan, Short Sales Are Almost Instantaneously Bad News: Evidence from the Australian Stock Exchange, 53 J. Fin. 2205 (1998) (studying a market setting in which information on short trades is transparent just after execution and finding that disclosure of such trades causes prices to decline immediately).

S. Grossman & J. Stiglitz, On the Impossibility of Informationally Efficient Markets, 70 Amer. Econ. Rev. 393, 405 (1980).

Kalok Chan, Yue-Cheong Chan & Wai-Ming Fong, Free Float And Market Liquidity: A Study Of Hong Kong Government Intervention, 27 J. Finan. Res. 179, 181 (2004).

See also CESR, Measures to Promote Market Integrity, CESR/01-052h (2002), at 16 (stating that “a sufficient free float is very important to enhance liquidity”).

Claudio Loderer & Lukas Roth, The Pricing Discount for Limited Liquidity: Evidence from SWX Swiss Exchange and the Nasdaq, 12 J. Empirical Finance 239, 240 (2005).

Joseph A. McCahery & Zacharias Sautner, Behind the Scenes: The Corporate Governance Preferences of Institutional Investors (2008) (unpublished manuscript, on file with author), at 30, 40.

See, e.g., Paul G. Mahoney, Mandatory Disclosure as a Solution to Agency Problems, 62 U. Chi. L. Rev. 1047 (1995)

REINIER KRAAKMAN, DISCLOSURE AND CORPORATE GOVERNANCE: AN OVERVIEW ESSAY, in: REFORMING COMPANY AND TAKEOVER LAW IN EUROPE (Guido Ferrarini, Klaus J. Hopt, Jaap Winter & Eddy Wymeersch eds., 2004), at 96.

Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes & Andrei Shleifer, The Law and Economics of Self-Dealing, 88 J. Finan. Econ. 430, 440 (2008).

Pierre-Henri Conac, Luca Enriques & Martin Gelter, Constraining Dominant Shareholders' Self-Dealing: The Legal Framework in France, Germany, and Italy, 4 ECFLR 491 (2007).

Alexander Dyck & Luigi Zingales, Private Benefits of Control: An International Comparison, 59 J. Fin. 537, 576, 579, 583 (2004).

CURTIS J. MILHAUPT & KATHARINA PISTOR, LAW & CAPITALISM: WHAT CORPORATE CRISES REVEAL ABOUT LEGAL SYSTEMS AND ECONOMIC DEVELOPMENT AROUND THE WORLD (The University of Chicago Press 2008), at 21.

Priya P. Lele & Mathias M. Siems, Shareholder Protection: A Leximetric Approach 7 J. Corp. L. Stud. 17, 49 (2007); Mathias M. Siems, Shareholder Protection Around the World ('Leximetric II'), 33 Del. J. Corp. L. 111 (2008); John Armour, Simon F. Deakin, Prabirjit Sarkar, Mathias M. Siems & Ajit Singh, Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis (2008). Available at SSRN: http://ssrn.com/abstract=1094355); S. FAGERNÄS, P. SARKAR & A. SINGH, LEGAL ORIGIN, SHAREHOLDER PROTECTION AND THE STOCK MARKET: NEW CHALLENGES FROM TIME SERIES ANALYSIS, forthcoming in: ESSAYS IN HONOUR OF DENNIS MUELLER (B. Yurtoglu & K. Gugler eds.). Available at SSRN: http://ssrn.com/abstract=987850. See Gerard Hertig & Joseph A. McCahery, Company and Takeover Law Reforms in Europe: Misguided Harmonization Efforts or Regulatory Competition?, 4 EBOR 179, 191 (2004) (arguing that any improvement in the situation of minority shareholders presupposes that they can credibly threaten to request a special investigation).

European Commission, Report on the Implementation of the Directive on Takeover Bids, SEC (2007) 268, at 3. See also High Level Group (2002), supra note Error! Bookmark not defined., at 19. For a critique on the wisdom of pursuing the creation of a market for corporate control, see Simon Deakin & Ajit Singh, The Stock Market, the Market for Corporate Control and the Theory of the Firm: Legal and Economic Perspectives and Implications for Public Policy (2008), available at http://ideas.repec.org/p/cbr/cbrwps/wp365.html.

Luca Enriques, The Mandatory Bid Rule in the Takeover Directive: Harmonization Without Foundation?, 1 ECFLR 440, 448, 452, 456 (2004).

Traditionally, this has been one of the purposes of the UK ownership disclosure rules. PAUL L. DAVIES, GOWER’S PRINCIPLES OF MODERN COMPANY LAW 611–12 (6th ed. 1997), at 485.

HEDGE FUND WORKING GROUP, HEDGE FUND STANDARDS CONSULTATION PAPER - PART 2 (2007), at 45 (arguing that the marketplace would benefit from more guidance on the general concept of “concert parties”).

Dorothee Fischer-Appelt, Implementation of the Transparency Directive - Room for Variations across the EEA, 2 Capital Markets Law Journal 133, 148 (2007).

REPORT OF THE CONFERENCE BOARD RESEARCH WORKING GROUP ON HEDGE FUND ACTIVISM (2008), at 22.

See Jensen & Meckling, supra note Error! Bookmark not defined., at 313. To be sure, the efficacy of certain forms of equity based compensation currently awarded can be questioned; see, e.g., LUCIAN A. BEBCHUK & JESSE M. FRIED, PAY WITHOUT PERFORMANCE: THE UNFULFILLED PROMISE OF EXECUTIVE COMPENSATION (Harvard University Press 2004). Moreover, the recent financial crisis has given skeptics reason to believe that equity based compensation may distort incentives rather than align them.

See also Jesse M. Fried, Reducing The Profitability Of Corporate Insider Trading Through Pretrading Disclosure, 71 S. Cal. L. Rev. 303, 354 (1998) (explaining how investors use information on insider trading to determine whether the company's insiders believe (based on their inside information) that the stock is over- or undervalued).

BaFin: No Breach of Reporting Requirements Identified in Continental AG Takeover Procedure (press release dated 21 August 2008).

Art. 13 of the Ordinance of the Swiss Federal Banking Commission on Stock Exchanges and Securities Trading;

Australian Takeovers Panel, Guidance Note 20 Equity Derivatives (2008);

Hong Kong Securities & Futures Commission, Outline of Part XV of the Securities and Futures Ordinance (Cap. 571) - Disclosure of Interests (2003).

France: RAPPORT SUR LES DÉCLARATIONS DE FRANCHISSEMENT DE SEUIL DE PARTICIPATION ET LES DÉCLARATIONS D'INTENTION GROUPE DE TRAVAIL PRÉSIDÉ PAR BERNARD FIELD, MEMBRE DU COLLÈGE DE L'AMF (2008), at 12;

Canada: Canadian Securities Regulators, Notice and Request for Comment - Proposed National Instrument 55-104 Insider Reporting Requirements and Exemptions, Companion Policy 55-104CP Insider Reporting Requirements and Exemptions and related consequential amendments (2008), at 9.

Italy: Sentenza Della Corte D'appello Di Torino sezione prima civile 5.12.2007/23.1.2008, available at http://www.consob.it (technically, this case was about wrongful disclosure made by the companies involved when they responded to questions by Consob with respect to their intentions concerning the control of FIAT); see also

Lisa Curran & Francesca Turito, Fiat/ Ifil: The Securities Law Implications for Equity Derivatives, 21 JIBFL 298 (2006);

Elizabeth Fournier, Europe Needs Coordinated Cfd Disclosure, IFLR, October 2008;

Resolution of 23 September 2008 with Recommendations to the Commission on Transparency of Institutional Investors, European Parliament (2007/2239(Ini)) (2008)

HEDGE FUNDS: TRANSPARENCY AND CONFLICT OF INTEREST, EUROPEAN PARLIAMENT - DEPARTMENT FOR ECONOMIC AND SCIENTIFIC POLICY (2007), at 28 (noting that a case can be made for all notifications of large shareholdings under the Transparency Directive to include (a) significant (3% or greater) short positions, and (b) also any derivative positions, whether long or short).

The Panel on Takeovers and Mergers, Dealings in Derivatives and Options (Consultation Paper Pcp 2005/1) (2005), at 11.

Richard Milne, Hedge Funds Hit As Porsche Moves On VW, The Financial Times, 27 October 2008.

See, e.g., SEC Release No. 34-58785, at 8; See, e.g., a speech by SEC staff (John White), Don't Throw Out Baby With Bathwater, Keynote address at ABA section of business law fall meeting, November 21, 2008.

For a critique on measures frustrating short sales, see, e.g., Asher Curtis and Neil L. Fargher, Does Short-Selling Amplify Price Declines or Align Stocks with Their Fundamental Values? (December 2008). Available at SSRN: http://ssrn.com/abstract=817446.

Letter from the European Association for Listed Companies (EALIC) to Commissioner McCreevy dated 14 September 2007, at 3 (describing lack of transparency caused by derivatives and asking whether CESR would support an extension of the scope of the major holdings disclosure provisions); letter from EuropeanIssuers dated 12 December 2008 (calling for increased transparency for a variety of reasons. While being put at a disadvantage in control contests is not explicitly mentioned as a concern, it appears safe to assume that this is one of the underlying concerns), both available at http://www.europeanissuers.eu. December 2008 by EuropeanIssuers (advocating complete transparency of stock lending towards all concerned parties, including the issuer), available at http://www.europeanissuers.eu.

Alexia Robinson, Addressing the Issue of Derivative Disclosure in Advance Notice Requirements, Sharkrepellent.net, December 16, 2008.

Jonathan Cohen, Negative Voting: Why It Destroys Shareholder Value and a Proposal to Prevent It, 45 Harv. J. on Legis. 237 (2008);

Shaun Martin & Frank Partnoy, Encumbered Shares, 2005 U. Ill. L. Rev. 775 (2005);

Robert B. Thompson & Paul H. Edelman, Corporate Voting (2008). Available at SSRN: http://ssrn.com/abstract=1156901.

Susan E. K. Christoffersen, Christopher C. Geczy, David K. Musto & Adam V. Reed, Vote Trading and Information Aggregation, 62 J. Fin. 2897, 2927 (2007).

Alon Brav & Richmond D. Mathews, Empty Voting and Efficiency (2008). Available at SSRN: http://ssrn.com/abstract=1108632.

Stephen M. Bainbridge, Sunlight the Best Disinfectant for Hedge Fund Empty Voting, Examiner.com, January 30, 2007, available at http://www.examiner.com.

Wachtell, Lipton, Rosen & Katz, Beneficial Ownership of Equity Derivatives and Short Positions – A Modest Proposal to Bring the 13D Reporting System into the 21st Century (Client memorandum dated March 3, 2008). Letter from the Alternative Investment Management Association (AIMA) dated 12 February 2008 (noting that disclosure would leave trading strategies “open to replication by those who have not expended the resources to conduct their own diligent research and investment analysis”).

JOHN ARMOUR, HENRY HANSMANN & REINIER KRAAKMAN, AGENCY PROBLEMS AND LEGAL STRATEGIES, in: THE ANATOMY OF CORPORATE LAW, supra note Error! Bookmark not defined., at 14. See also Siems, supra note Error! Bookmark not defined., at 142 (noting that the enforceability of ownership disclosure provisions is endangered by the fact that the shareholders’ register does not identify holders of bearer shares or fiduciary holdings).

E. BERGLÖF & A. PAJUSTE, EMERGING OWNERS, ECLIPSING MARKETS? CORPORATE GOVERNANCE IN CENTRAL AND EASTERN EUROPE, in: CORPORATE GOVERNANCE AND CAPITAL FLOWS IN A GLOBAL ECONOMY (P.K. Cornelius & B. Kogut eds., 2003), at 267, 286, 291. See also John C. Coffee, Law and the Market: The Impact of Enforcement (2007) (finding a disparity in enforcement intensity between common law and civil law countries). Available at SSRN: http://ssrn.com/abstract=967482.

Erik Berglöf & Anete Pajuste, What Do Firms Disclose and Why? Enforcing Corporate Governance and Transparency in Central and Eastern Europe, 21 Oxford Rev. Econ. Pol. 178, 180 (2005).

See also Yuan Ding, Ole-Kristian Hope & Hannu Schadewitz, Firm-Level Transparency in the Former East Bloc: Empirical Evidence from the Baltic Region (2008), at 15 (finding that in 2004, Baltic firms disclosed significantly less ownership information than Nordic firms). Available at SSRN: http://ssrn.com/abstract=1098193.

Simon Deakin, Two Types of Regulatory Competition: Competitive Federalism Versus Reflexive Harmonisation. A Law and Economics Perspective on Centros, 2 Cambridge Yearbook of European Legal Studies 231, 260 (1999).

Luca Enriques & Tobias H. Troeger, Issuer Choice in Europe, 67 Cambridge L. J. 521 (2008);

Christian Leuz, Karl V. Lins & Francis E. Warnock, Do Foreigners Invest Less in Poorly Governed Firms? (2008) (showing that US investors hold significantly fewer shares in firms with high levels of managerial and family control when these firms are domiciled in countries with weaker disclosure requirements, including with respect to ownership). Available at SSRN: http://ssrn.com/abstract=677642.